July 3, 2007 1:05 PM PDT

Where TomorrowNow goes from here

Embroiled in controversy, SAP's third-party maintenance and support company TomorrowNow is facing challenging days ahead.

SAP disclosed late Monday that its TomorrowNow subsidiary had inappropriately downloaded Oracle's proprietary software. At the heart of the issue, Oracle alleges in a lawsuit, is that TomorrowNow, as it provided support services to customers who hold an Oracle license, accessed Oracle's support system and downloaded software and materials that surpassed what those customers were entitled to receive under their license agreement.

Download disclosure
SAP admits 'inappropriate' downloads from Oracle
The software maker says that downloads of Oracle files by an SAP unit were a breach of conduct. The feds are investigating.

That disclosure creates uncertainties about TomorrowNow's ability to attract new customers and retain old ones.

"Our due diligence suggests that SAP's TomorrowNow unit is losing business because of this lawsuit," Pat Walravens, a JMP Securities analyst, said in a research note. "Our due diligence uncovered one Fortune 200 business that decided not to do a deal with TomorrowNow in (the second quarter) due in part to the pending lawsuit."

TomorrowNow had fewer than 400 customers in 2006 and generated sales of $16 million, according to a research note by UBS Securities.

Investors are apparently concerned about the effect of the controversy on SAP, which saw its shares fall 1.54 percent to close at $50.98 Tuesday, despite a day of gains overall for the markets.

"Until SAP can satisfy the (Department of Justice) that TN's failings were isolated, this will remain a cloud over the stock," according to the UBS report.

SAP's chief executive, Henning Kagermann, however, said customers should not be concerned.

"What TomorrowNow did happened in only a few cases," Kagermann said. "We reacted immediately and if you look at the procedures that are in place, we had clear prodecures but had not followed them properly. Customers should not be concerned."

Peter Kuper, a Morgan Stanley analyst, said SAP will need to work hard in assuring customers that doing business with the company and TomorrowNow is not a mistake.

"This is not a catastrophic event that they can't recover from," Kuper said.

He noted, however, Oracle will likely use the controversy to drive current and potential SAP and TomorrowNow customers its way.

"Oracle is definitely going to use this...They're not silly and won't let this opportunity pass them by," Kuper said.

Oracle, in its lawsuit, has alleged that TomorrowNow engaged in illicit downloads to give it a competitive advantage by offering low support and maintenance fees and faster time-to-market services.

SAP's Kagermann, however, disputed such claims.

"TomorrowNow can stay competitive," Kagermann said, noting there is no evidence TomorrowNow used the downloaded materials to improve its chances on the competitive landscape.

See more CNET content tagged:
TomorrowNow, SAP AG, Henning Kagermann, Oracle Corp., controversy

 

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